Carney Sees Brief Inflation Dip as Rate-Cut Odds Downplayed

Bank of England Governor Mark Carney told consumers that the slump in U.K. inflation is likely to be temporary as his monetary-policy deputy said circumstances don’t justify adding to stimulus.

“Enjoy it while it lasts,” Carney said in the Daily Telegraph newspaper. The impact of the oil-price drop on inflation “should wash out of the system over the next year or so,” and then inflation will accelerate, BOE Deputy Governor Jon Cunliffe said on BBC radio on Friday.

The comments come after the BOE published new forecasts on Thursday showing the inflation rate may dip below zero in the coming months. While Carney said the bank could cut the benchmark interest rate again if needed, he also said it’s more likely that the next move in borrowing costs will be an increase from a record-low 0.5 percent.

“We don’t see that the economy, inflation at the moment, justifies” a rate cut or restarting quantitative easing, Cunliffe said. “The point we are making is that if necessary to bring inflation back to target, we have the tools to be able to do that.”

Strong underlying economic growth will help return inflation to the 2 percent goal, Cunliffe said. Under the BOE’s analysis, the rate could breach the target at the end of its three-year forecast period.

“This is temporary” and mostly due to declines in food and energy prices, Carney said in the Telegraph interview. “Enjoy it while it lasts, because this will go away over the course of the next year.”

The pound rose for a second day against the dollar after a 1 percent surge on Thursday following the publication of the BOE forecasts. Sterling was trading at $1.5402 as of 08:14 a.m. London time.